Chapter II

Audit Reports-Union Government

 

Scope of Audit

The audit of accounts and transactions of the Union and the State Governments covers the following aspects:-

  • Audit of Expenditure

  • Audit of Receipts

  • Audit of Stores and Stock

  • Certification Audit

  • Audit of Government Companies/ and Corporations

  • Audit of Autonomous Bodies/ and Authorities

  • Information Technology Audit
    • Audit Reports

      CAG submitted 21 Audit Reports during 2001-02 on the Accounts and transactions of the Union Government. These are:

      Sl.No.

      Category of Reports

      No. of

      Reports

      No. of Paras

      No. of Reviews

       

      Civil

      3

      48

      10

       

      Scientific Departments

      1

      3

      17

       

      Autonomous Bodies

      4

      57

      5

       

      Direct Taxes

      2

      114

      6

       

      Indirect Taxes

      Customs

      Central Excise

       

      1

      1

       

      209

      154

       

      2

      1

       

      Defence Services

      Army and Ordnance Factories

      Air Force and Navy

       

      2

      1

       

      97

      19

       

      3

      0

       

      Railways

      1

      85

      5

       

      Post and Telecommunications

      1

      65

      5

       

      Commercial*

      4

      618

      8

       

      Total

      21

      1469

      62

      *In addition, Annual Accounts of 5 Statutory Corporations and 1 Autonomous Body – Oil Industry Development Board (OIDB) in respect of which CAG is the sole Auditor, were certified and Audit Reports on their accounts sent to the Corporations/Autonomous Body and their Administrative Ministries or Departments for laying on the tables of both the Houses of Parliament.

       

      Volume of Work

      The volume of work involved in the audit of the expenditure and receipts of the Union Government and Administrations of Union Territories during the year 2001-02 is indicated below:

      CENTRAL AUDIT 2001-02

      Wings of Audit

      No. of vouchers/
      divisional accounts

      and other records

      audited during

      2001-02

      No. of Audit

      Notes issued

      during
      2001-02

      Money value

      (Rs. in crore)

      Civil

      323505

      309

      2.05

      Other Autonomous Bodies

      300863

      638

      12.42

      Scientific Departments

      28639

      922

      39.49

      Post & Telecommunications

      328421

      791

      562.15

      Defence Audit

      97217

      273

      961.90

      Railway Audit

      1600678

      4482

      511.84

      Revenue Receipts -

      Indirect Taxes

       

      2818838

       

      2315

      142.46

      Total

           

      LOCAL AUDIT 2001-02

      Wings of Audit

      No. of units audited

      during 2001-02

      No. of IRs issued during 2001-02

      Money value

      (Rs. in crore)

      Civil Audit

      2656

      2631

      3059.79

      Other Autonomous Bodies

      1577

      1559

      1940.55

      Scientific Departments

      342

      297

      5327.94

      Post & Telecommunications

      1706

      1792

      3600.15

      Defence Audit

      1768

      1351

      19151.67

      Railway Audit

      6523

      6685

      2777.69

      Revenue Receipts -

      Indirect Taxes

      Direct Taxes

      6948

      2111

       

      4837

      3395

       

      4852.91

      6363.06

      Commercial

      1553

      1358

      27540.55

      Total

      25184

      23905

      74614.31

       

      Audit Reports [Civil]

       

      1. Accounts of the Union Government

       

      Finance Accounts and Appropriation Accounts of the Union Government as well as various transactions in these accounts were audited by the CAG of India. Highlights of the audit points are discussed below:

       

      Budgetary Performance of the Union Government : 2000-01

      Rs/crore

       

      Budget

      Actual

      Excess (+)

      Shortfall (-)

      %

       

       

       

       

      Revenue Receipts

      276962

      256036

      - 7.56

      Revenue Expenditure

      354082

      342647

      - 3.23

      Revenue Deficit

      77120

      86611

      12.31

      Interest Payment

      105642

      103224

      2.29

      Debt Repayment

      354767

      269512

      - 24.03

      Disbursement from

      Public Accounts

      148181

      224753

      51.67

      Fiscal Deficit

      112211

      120874

      7.72

      Collection of Taxes and Duties

       

       

      Customs Duty

      53572

      47542

      11.26

      Central Excise

      71252

      68526

      3.83

      Corporation Tax

      40040

      35696

      10.85

      Income Tax

      31590

      31764

      - 0.55

      Transfer to States

       

       

       

      Corporation Tax

       

      10519

       

      Income Tax other than Corporation Tax

      7998

       

      Customs

       

      13379

       

      Union Excise duties

       

      18768

       

      Grants

       

      37684

       

      Loans

       

      20490

       

      Other Points

       

        • Total receipts of the Union Government during the year 2000-01 amounted to Rs.942985 crore. Union Government’s own receipts constituted only 35 per cent of total receipt. The remaining 65 per cent came through borrowings.

        • Interest payments accounted for 40 per cent of revenue receipts during the year 2000-01. Interest payments increased nearly fourteen times from the level of 1985-86. Mounting interest burden coupled with a declining current revenue / GDP ratio accentuated the problem of fiscal management.

        • There were 34 cases of 24 grants and two appropriations with unspent provision of Rs.100 crore or more in each segment of grant/appropriation during
          2000-01. Large unspent provision occurred in developmental areas like health, education, welfare, rural / urban development, urban employment and poverty alleviation, surface transport and power etc. Some of the important schemes/ projects/ activities most affected by unspent provisions were:

      Accelerated Power Development Programme

      National Anti-Malaria Programme

      National Highways

      National Programme for Women’s Education

      Prime Ministers Gramodaya Yojana

      Reproductive and Child Health Project

      Rural Electrification

      Sarva Shiksha Abhiyan

      Schemes for the benefit of North Eastern Region and Sikkim

      Swarnajayanti Gram Swarozgar Yojana

        • As on 31st March 2001, unutilised committed external assistance was of the order of Rs.55764 crore, much of the unutilised external assistance was for projects in the infrastructure sector. Rs.40.23 crore were paid as commitment charges to various bodies/government during the year 2000-01.

        • Disbursements ranging from 21 to 100 per cent were made in the month of
          March 2001 in 120 major heads of 53 grants / appropriations.

      1. Transaction Audit Observations

      Highlights of Audit Points

      1. Sugar Development Fund

      The Fund did not contribute to the growth, development, modernisation/rehabilitation of sugar factories and cane development as disbursements ranged from
      Rs.1081.13 crore to Rs.1328.44 crore or 6 to 32 per cent of the available funds during 1995-2001. The Fund was never evaluated keeping in view the balances each year. The Ministry had not evolved any mechanism to assess the progress of implementation of the projects/schemes. In 39 out of 64 cases of Modernisation and Cane Development, no loan was released though sanctions were issued six to twelve years earlier. The due/overdue amount of loan and penal interest stood at
      Rs.230.15 crore at the end of March 2001. Objectives of short-term loans for providing inputs like seeds, fertilizers and pesticides for development of sugarcane could not be achieved due to non-release of Rs.37.43 crore to 70 sugar mills, defeating the entire objective of the scheme.

      2. Frequency Modulation (FM) Radio Coverage

      The main purpose for adopting FM was to take radio to the masses. The setting up of FM radio stations was adversely affected by delays in construction and commissioning; poor deployment of staff and cost escalations. FM also did not achieve the targeted 70 per cent Outstation Broadcasting based programmes. Against the target of commissioning of 133 radio stations, only 122 radio stations were commissioned after delays of upto 132 months. Expenditure of Rs.4.41 crore became un-productive due to injudicious selection of site. Transmitters, studio equipment etc. valuing Rs.17 crore remained unutilised due to their purchase before acquisition of land. Reduction in licence fee chargeable from private operators resulted in revenue loss of Rs.17.79 crore. Expenditure of Rs.1.92 crore was incurred on surplus staff retained by 31 stations.

      1. Integrated Wastelands Development Programme (IWDP)

      Of the 638.5 lakh hectare of wastelands in the country, development of degraded land of 244.5 lakh hectare (38.3 per cent) only was attempted to be addressed under various programmes of the Ministry. The area sanctioned under IWDP was only 33.20 lakh hectare (13.6 per cent) and Rs.542.02 crore were released towards
      426 Projects between 1991-2001. Only 38 projects could be completed, 32 were closed and 356 remained incomplete. Evaluation was done only in respect of
      16 Projects. Even 50% of the sanctioned amount was not released in respect of
      73 Projects scheduled for completion in March 2001. The short-term objectives of augmentation of fuel wood and fodder availability and preparation of village level action plans, technology dissemination, employment of SC/ST, peoples’ participation and sharing of usufructs could not be achieved.

      4. Integrated Development of Small and Medium Towns (IDSMT)

      Out of 4656 small and medium towns, projects were sanctioned in only 1058 towns in the two decades ending March 2001. Out of 3870 projects approved during
      1992-2001, only 812 projects were completed. Out of the total Central and State releases and institutional finance of Rs.802.92 crore, expenditure of Rs.671.42 crore was incurred as of March 2001 on projects approved between 1979 and 2001. Private sector participation was not forthcoming. The Ministry/State Governments sanctioned/released funds without ensuring creation of Revolving Funds and State Urban/Municipal Development Fund. This resulted in failure to systematically channelise funds for infrastructure development to give effect to the state/town development plans.

      The mid-term appraisal of the Ninth Five Year Plan, carried out by the Planning Commission, also found that the implementation of the scheme was not satisfactory. Other areas of concern included timely completion of projects, non-augmentation of resources by urban local bodies for continued investment; non-creation/consolidation of Revolving Funds for tie-up of institutional finance, etc. Even in terms of another important objective of the scheme, namely, resource generation in the towns/local bodies, hardly 19.53 per cent of the expenditure incurred from the VIII plan onwards was raised as institutional finance. No resources for maintenance of the assets created under the programme were generated.

      5. Unauthorised demolition of heritage building

      When CPWD, Kolkata unauthorisedly started the demolition work of a heritage building in violation of rules, the Kolkata Municipal Corporation issued notice to the CPWD for stoppage of work and restoration of the damaged portion. The partly demolished building remained unutilised for almost five years. This resulted in avoidable rent payment of Rs.4.88 crore up to August 2001, besides the anticipated restoration cost of Rs.12.69 crore.

      1. Performance Appraisal

      Highlights of Audit Points

      1. National Disease Control Programme

      The National Disease Control Programme is a cluster of programmes aimed at the treatment, prevention and control of major diseases like Cataract Blindness, Tuberculosis, Leprosy and AIDS in the country. Significant shortcomings noticed in audit of two of these major diseases, namely Blindness and Tuberculosis are detailed below:

        1. National Programme for Control of Blindness:

        • The programme aimed to bring down the rate of prevalence of blindness from
          1.4 to 0.3 per cent by 2000 A.D. The target fixed at 600 cataract operations per lakh population per year was not achieved. The rate of success/failure of the cataract operations was not measurable as no record was available with the States.

        • The reach of the programme left more than 70 lakh prospective beneficiaries untargeted. In terms of delivery, the programme relied more on the private sector for its success as only 21 to 26 per cent of cataract operations in project States and 11 to 28 per cent of operations in non-project States were performed by the Government sector.

        • Shortfalls in surgeries performed by Government doctors ranged between 19 and 98 per cent and under-utilisation of ophthalmic beds was between 8 and 90
          per cent. The programme failed to succeed in mobilizing the base hospital approach and greater reliance was placed on the camp approach.

        • Shortfalls in the deployment of Mobile Units ranged between 9 and 45 per cent in project States. Shortfalls in surgeries performed in these units ranged between
          24 and 100 per cent.

        • Only 55 and 45 per cent of the eyes collected by Government and the voluntary sector respectively were utilised for keratoplasty.

        • Unspent grants of Rs.30.89 crore were lying with District Blindness Control Societies.

        1. National Tuberculosis Control Programme:

        • The grants released to District Tuberculosis Control Societies were utilised only to the extent of 13 to 27 per cent during 1996-97 to 2000-01. Grants to DTCS for assistance to NGOs could only be utilised to the extent of 12 per cent.

        • Management of drugs at the Medical Stores Depots/States was not efficient. Time expired anti-TB drugs worth Rs 1.87 crore were lying with MSDs/DTCS. Substandard drugs worth Rs.34.33 lakh had been purchased by different States/MSDs. 48 utilisation certificates involving grant of Rs.52.53 crore for purchase of anti-TB drugs were not received.

        • World Bank aid to RNTCP increased from Rs.37.07 crore to Rs.71.01 crore over the five years under review, while the Government’s commitment level to the programme was limited to about 24 per cent of the expenditure in the same period. However, only 20 per cent of the World Bank aid was utilised after completion of four years of the total project period of five years.

        • Shortfalls in supervisory visits undertaken by States ranged between 3 and
          100 per cent. No evaluation of the programme was done at the State level.

      2. Accelerated Rural Water Supply Programme (ARWSP)

      The programme aimed to ensure coverage of all rural habitations, especially those hitherto un-reached and not having access to safe drinking water. It was noticed that:

        • About 20,073 habitations did not have any source of water. 1.55 lakh habitations remained only partially covered. Re-emergence of 73,197 problem habitations in 7 States negated the impact of the programme. Inadequate maintenance of water sources resulted in failure of a substantial number of hand pumps installed. In 13 States, water modes set up at a cost of Rs.369.20 crore were non-operational. Water treatment plants, installed at a cost of Rs.16.32 crore to control fluorosis, excess iron and salinity were non-functional. Poor performance of water quality testing laboratories defeated the objective of providing safe drinking water to the rural population in the affected areas.

        • Rs.283.90 crore were spent on coverage of partially covered habitations during
          1997-2001, contrary to the priority norms even though there were habitations with no source of drinking water.

        • Significant components of the Programme such as Human Resource Development and Information, Education and Communication failed to achieve the objectives of creating awareness on use of safe drinking water and imparting training to the local population.

        • Application of funds without adequate planning and scientific identification of water sources led to abandonment of 2,371 schemes midway in 19 States, costing
          Rs.197.52 crore. Scientific methods of source selection were not adopted in
          10 States, resulting in failure of the schemes and rendering Rs.64.71 crore wasteful.

        • Diversion of funds of Rs.86.15 crore to activities not connected with the programme, unauthorised retention of funds of Rs.393.77 crore in Civil/Revenue/Public Works Deposit, inflated financial achievement of
          Rs.307.69 crore, excess expenditure of Rs.191.41 crore met from ARWSP funds instead of from State Plan funds, materials costing Rs.68.79 crore purchased in excess of requirements were amongst the shortcomings noticed in programme implementation.

      3. Accelerated Urban Water Supply Programme

      The basic objectives of the programme included the provision of safe and adequate water supply facilities to entire towns with a population of less than 20,000 in the country within a fixed time frame, improvement of the environment, quality of life and socio-economic conditions with a view to increasing productivity for sustained economic development. Review of the programme revealed that:

      • The implementation of the Programme was deficient in critical areas. No effective system to identify towns/schemes was instituted in most States. Towns in which water availability was already in excess of the prescribed limit of 70 LPCD as well as ongoing schemes under the State plans or those financed with assistance from HUDCO were also included under the Programme. Financial resources were improperly managed and excess releases of funds to non-performing States resulted in accumulation of unspent balances. Shortfalls in contributing the matching States’s share led to non-realisation of the programme objectives. Proper monitoring was lacking, both at the Ministry and State levels. Crucial aspects of the programme like community participation, adoption of a realistic tariff structure and establishment of the sustainability of the schemes were neglected in most schemes. The Ministry did not evaluate the programme to assess its impact.

      • Only 575 schemes were sanctioned, while a total of 2151 small towns were to be covered. Of these, 200 schemes had been completed/ commissioned, 274 schemes were ongoing and 101 were to be taken up as of March 2001.

      • Of the total Central and State assistance of Rs.479.14 crore released up to
        March 2001, Rs.329.45 crore were spent, leaving an unspent balance of
        Rs.149.69 crore. Rs.55.73 crore were diverted to activities not connected with the Programme, retained in deposits or were misutilised, etc.

      • Against 1025 problem towns identified in 18 states, only 201 such towns in 15 States had been covered. In Sikkim, Assam and Bihar, none of the 98 problem towns identified were covered. In the States of Gujarat, Rajasthan, Jammu & Kashmir, Karnataka and Arunachal Pradesh, problem towns were not identified.

      • Asset maintenance was poor. Inventory records were not maintained and assets were not handed over to the communities.

      • Tariff structure had either not been evolved or was inadequate to meet expenditure on the operation and maintenance of the schemes.

      • Quality of water supplied was neither tested nor maintained in six States namely Karnataka, Orissa, Tamil Nadu, Uttar Pradesh, Manipur and Himachal Pradesh.

       

       

      Audit Report [Autonomous Bodies]

      In 2000-01 accounts of 226 central autonomous bodies were to be certified by the CAG of which accounts of only 203 were received for certification. Government of India released Rs.6686.62 crore towards grants and Rs.300.57 crore towards loan to these bodies during 2000-01. The annual accounts of the balance 23 bodies were not finalised.

      The annual accounts of 99 out of 139 central autonomous bodies (other than those under Scientific Departments) whose accounts were to be certified by Chartered Accountants but required transactions audit were also not finalised by the concerned bodies. The remaining
      40 bodies received grants amounting to Rs.193.16 crore from the Union Government.

      Major Audit Findings

       

      1. University Grants Commission (UGC)

      Audit review revealed that UGC did not have any mechanism to monitor compliance of its instructions relating to standards of education, implementation of recommendation of Curriculum Development Committee. No inspection of Universities was ever conducted as required by the statutory provisions. Out of
      146 Universities visited during 1997-98 to decide quantum of development grants, only 6 universities were assessed for standards of teaching up to 1999-2000. No measures were taken to eliminate disparity in disbursement of development grants to State Universities despite directives of Public Accounts Committee 25 years ago nor did UGC formulate and implement a package of examination reforms. While decision to freeze internal income of Universities at 1990-91 level resulted in excess release of maintenance grants amounting to Rs.26.87 crore during 1992-98 to Central Universities, 50877 utilization certificates for Rs.511.37 crore for the period 1958-59 to 1988-89 were outstanding as on 31.3.1999.

      Operation of irregular ‘upward movement’ schemes by two Universities resulted in an average additional annual burden of Rs.5.69 crore on maintenance grants of Jawaharlal Nehru University and Jamia Millia Inslamia alone. Rs.8.12 crore on account of conversion of CPF to GPF remained unadjusted in Banaras Hindu University and Delhi University. Non-adherence of norms set out in guidelines of various schemes resulted in irregular release of grants of Rs.18.33 crore in 67 cases.

      An amount of Rs.3.56 crore remained blocked in 423 research projects due to their non-completion even after permissible extended period and extension of dates of implementation.

      Expenditure of Rs.1.33 crore incurred on UGC computerisation proved infructuous due to non-development of software and failure to fill up vacant posts created in the Computer unit. While expenditure on account of establishment for Rs.9.04 crore was irregularly diverted to plan funds, Rs.2.62 crore was injudiciously allocated to National Eligibility Test division.

      2. Dredging Operations at Kolkata Port Trust (KoPT)

      Major components of a comprehensive scheme involving capital dredging, river training works and maintenance dredging approved in 1982 were not implemented and instead ad-hoc targets from year to year for maintenance dredging alone were fixed. These ad-hoc targets failed to improve the navigation channels. Despite heavy recurring expenditure incurred on maintenance dredging by KoPT shipping channels leading to Kolkata Dock System and Haldia Dock Complex could not be made navigable for bigger ships thereby adversely affecting the revenue earnings of the Port.

      KoPT’s own dredgers as well as hired dredgers performed poorly. Flawed contracts, poorly supervised operations and sheer negligence, caused large excess payments amounting to Rs.137.16 crore as revealed in test check. Instead of shore disposal, dredged material continued to be dumped in the river with consequent recycling.

       

      3. Securities and Exchange Board of India, Mumbai (SEBI)

       

      (a) Avoidable loss in acquiring of office space

       

      SEBI hired expensive office space without following normal procedures which resulted in blocking of deposit amount of Rs.4.60 crore for over four years after expiry of agreement for ‘leave and licence’ and loss of interest and extra expenditure on rent amounting to Rs.8.17 crore.

       

      (b) Irregularities in hiring of residential flats

       

      SEBI hired residential flats without following proper procedure. It had to suffer a financial loss of Rs.3.66 crore besides blocking of deposit of Rs.8.05 crore up to February 2001 and Rs.7.45 crore as of July 2001.

       

       

      4. Chennai Port Trust

       

      Excess payment of escalation charges

      Incorrect computation of cost escalation without deducting the cost of rocks supplied at fixed rate from the value of work done resulted in excess payment of Rs.8.72 crore.

      5. Paradip Port Trust (PPT)

       

      Unauthorised payment of advance

      An interest free advance of Rs.15 crore was paid by PPT to the GRIDCO between February 1996 and June 2000 for construction of 220 KV double circuit transmission line from Duburi to Paradip. The delegated powers of PPT did not allow for such advance payment and unnecessarily burdened PPT’s finances. The project meant to be completed by September 1998 remained incomplete even as of October 2001 defeating the very purpose of the advance.

      6. Jawaharlal Nehru Port Trust (JNPT)

      (a) Improper decision to lease out buffer yard

      JNPT constructed a buffer yard at a cost of Rs.4.66 crore and leased it out to a private agency despite having sufficient infrastructure and manpower to operate and maintain it. This resulted in loss of revenue of Rs.19.79 crore.

      (b) Unproductive expenditure

      The Port Trust procured equipment / machinery at a cost of Rs.8.93 crore on the basis of recommendations of a consultant without analysing actual needs. As the contractor did not commission the equipment successfully, the Port could not use them right from their procurement, which resulted in unproductive expenditure of Rs.8.53 crore.

      7. Mumbai Port Trust (MbPT)

       

      Irregular inclusion of House Rent Allowance

      Irregular inclusion of element of House Rent Allowance while calculating Overtime Allowance resulted in avoidable expenditure of Rs.30.14 crore.

      8. Delhi Development Authority (DDA)

      (a) Blockade of funds

      Failure of DDA to provide basic amenities made the Narela Housing Scheme unpopular and resulted in cancellation of allotment of houses by the allottees. Out of 6039 houses constructed, 2003 houses remained vacant leading to blockade of funds of Rs.36.08 crore for three years to seven years.

      (b) Delay in completion of housing scheme

      DDA incurred extra expenditure of Rs.7.20 crore due to delay in supply of layout plans and materials. This highlights one of the persistent problems that plague DDA viz. not ensuring timely supply of either drawings/plans/material/site showing gross negligence and very poor monitoring by higher authorities.

      Result of Certification audit

      Separate audit reports of each of the autonomous bodies audited under sections 19 (2) and
      20 (1) of the CAG’s (DPC) Act, 1971 are appended to the certified final accounts required to be tabled by Ministries in Parliament. Some of the important cases in which major comments were issued to the organisations / ministries concerned are mentioned below:

      Defaults in repayment of loans by Port Trusts

      Jawaharlal Nehru Port Trust

      Capital debt of the Port Trust were understated by Rs.435.45 crore by not providing for the defaulted payment of Rs.53.61 crore towards principal and Rs.381.84 crore towards interest on World Bank assistance.

      Cochin Port Trust (CoPT)

      During 2000-01 CoPT defaulted in repayment of loan of Rs.8.72 crore from Government of India. The total amount of repayment defaulted up to 31 March 2001 was Rs.72.40 crore and interest Rs.175.54 crore. Penal Interest amounting to Rs.206.09 crore on defaulted repayment as on 31st March 2001 was not disclosed in the accounts.

      Audit Report [Scientific Departments]

       

      Highlights of Audit Points

      1. Indian Agricultural Research Institute (IARI), New Delhi

      IARI could complete 180 out of 402 in-house projects during 1995-2001, of which final project reports were available for 55 projects only. In 15 out of 20 completed in-house projects test checked, objectives were only partially achieved resulting in unfruitful expenditure of Rs. 2.79 crore. Its objective as a centre for academic excellence could not be achieved in full despite the fact the strength of faculty members during 1995-2001 was three times the number of students admitted for different courses.

      Research was driven more by the scientists of IARI launching in-house
      projects which showed very poor results rather than being need based. Out of
      277 projects completed during 1995-2001, only 57 projects were sponsored by outside agencies.

      There was lack of demand for released varieties of wheat, paddy, maize etc. among the farming community which indicated that the projects were taken up without adequate market survey.

      IARI could not complete construction of a Glasshouse complex, which was scheduled for completion by September 1989 even after incurring an expenditure of
      Rs.1.14 crore.

       

       

      1. Wasteful expenditure on social welfare project for fishermen

        The Department of Ocean Development envisaged a social welfare project to assist fishermen in maintaining effective communication between boat & shore and boat & boat. Despite expenditure of Rs.3.40 crore and time over-run of more than four to eight years, none of the stations were made fully operational.

      2. Undermining Parliamentary financial control

      The Ministry of Information Technology approved an arrangement by which the revenue generated from the services offered by Standardisation, Testing and
      Quality Certification (STQC) would be credited to Society for Electronics Test Engineering, an autonomous body under STQC. The decision to credit Government receipts into a separate account instead of the Consolidated Fund of India and to incur expenditure out of it, violated the provision of Articles 266 of the Constitution and the financial rules and placed the expenditure beyond the financial control of the Parliament.

      Audit Report [Post & Telecommunications]

       

      The total quantifiable financial implication of the paragraphs and reviews included in the Report is Rs.1477.35 crore.

      Highlights of Audit Points

      1. Department of Telecommunications (DoT)

      1. Production Management of Telecom Factories at Kolkata, Bhilai and Richhai

        • Telecom Factories at Kolkata, Bhilai and Richhai surrendered funds
          under capital grant during 1996-2001. The savings by these factories ranged up to 92 per cent.

        • Performance of all the three factories was poor and there was shortfall
          in the production targets of a number of items, the shortfall ranging upto
          100 per cent.

        • Galvanising plant at Telecom Factory Richhai was underutilised, resulting in short fall in production valuing Rs.41.08 crore.

        • In-house production cost by Telecom Factory Kolkata exceeded the open market rate; the financial implication was Rs.12.42 crore during 1996-2000.

        • 1765 work orders valuing Rs.14.15 crore were pending in telecom factories at Kolkata, Bhilai and Richhai for up to 10 years. The capacities of these telecom factories were grossly under-utilised; the under-utilisation ranged from
          31 to 56 per cent.

        • Cost of galvanisation in Telecom Factory Bhilai was very high, resulting in extra expenditure of Rs.9.89 crore.

       

      1. Management of Telecom Stores

        • Department did not follow the practice of ABC classification of stores, as a regular measure.

        • Progressive Stock Taking and Independent Stock Verification required to be done for all items every year were not conducted by many units. Discrepancy statements were not prepared in some cases. Cases of non-regularisation of discrepancy statements were lying outstanding from 1978-79.

        • Effective steps were not taken for disposal of obsolete and unserviceable stores. Stores valuing Rs.25.41 crore were lying in various store depots for several years awaiting disposal.

        • Stores-in-transit valuing Rs.27.41 crore had not been adjusted for periods as far back as 1975-76.

        • Advances amounting to Rs.357.65 crore paid to suppliers up to March 2000 remained unadjusted up to March 2001.

        • In some Controllers of Telecom Stores (CsTS) arrears of recovery for stores sold to other government departments amounting to Rs.29.44 crore remained unrealised as on 31 March 2001. The outstandings dated back from
          1992-93 onwards.

        • The theft of stores involving Rs.73.22 lakh in CsTS remained unsettled. The earliest case dated back to 1975-76.

        • The department did not take any satisfactory steps for settlement of outstanding amount of Rs.12.01 crore arising from thefts/damages/loss in transit and occurring upto March 2001 in respect of five wholesale depots.

       

      3. Working of Telecom Civil Divisions

        • Department did not fix annual physical/financial targets which resulted in
          non-monitoring of physical and financial performance of the Civil divisions.

        • Four additional civil divisions were created prematurely in violation of prescribed norms resulting in an avoidable expenditure of Rs.2.41 crore.

        • Construction of CTO building was not taken up even after a delay of 14 years resulting in cost overrun by Rs.16.67 crore.

        • Department’s failure to protect the property (Kalibari, New Delhi) against encroachment resulted in avoidable expenditure of Rs.5.83 crore for relocation of Jhopari dwellers and removal of malba from the site.

        • In violation of financial norms 57 works in six circles were awarded without calling for tenders.

        • Delay in execution of 285 works resulted payment of Rs.3.78 crore towards escalation in rates. In addition there was a potential loss of revenue of
          Rs.103 crore due to delay in completion and handing over telephone exchange buildings in respect of 21 works in two circles.

        • Rs.8.26 crore on account of deposit works had not been recovered.

        • Arbitration awards in favour of contractors due to departmental failure resulted in avoidable payment of Rs.5.44 crore towards compensation.

       

      4. Undue favour to licencees and loss of revenue

      Licences of M/s Koshika Telecom Ltd. and Ms. Bharti Mobile were not terminated by DoT despite non-payment of dues. While Rs.438.20 crore were outstanding from M/s Koshika Telecom Ltd., Rs.218 crore recovered from M/s Bharti Mobile was subject to the outcome of an arbitrator’s award.

       

      5. Non realisation of service tax

      Failure of DoT to levy service tax on telecommunications services resulted in
      non-recovery of service tax of Rs.6.23 crore during July 1994 to September 2000 in five telecom units and Mahanagar Telephone Nigam Limited, Delhi.

      (b) Department of Post (DoP)

      1. Physical and Financial Performance

        • Most of the postal services were running in losses

        • Loss during 2000-01 : Rs.1424.96 crore

        • Speed post services short achieved financial targets by 40 per cent.

        • Widening gap between Revenue expenditure and Revenue receipts

      1996-97

      Rs.703 crore

      2000-01

      Rs.1549.76 crore

      2. Working of Postal Accounts Office

        • Test check conducted in nine Postal Accounts offices (PAOs) disclosed that a sum of Rs.1045 crore drawn from bank remained unlinked in the bank schedules at the end of March 2001. Similarly, a sum of Rs.797.00 crore drawn from bank remained unlinked in the Post Office (PO) schedules in eight Postal Accounts offices. A sum of Rs.30.82 crore drawn from the treasury remained unlinked in the PO schedules in five PAOs.

        • Test check in 10 PAOs disclosed that a sum of Rs.2934.34 crore remitted to bank remained unlinked in the post office schedule at the end of March 2001.

        • Interest amounting to Rs.4.59 crore was not recovered from the concerned banks for delayed remittances and excess/double reimbursement during 1996-2001.

        • A sum of Rs.366.79 crore under credit suspense and Rs.587.86 crore under debit suspense were outstanding at the end of March 2001 in ten Postal Accounts offices under review.

        • A sum of Rs.26.44 crore on account of foreign money orders paid in India were to be recovered from the foreign Governments as of July 2001.

        • A sum of Rs.30.26 crore was to be realised on account of pension payments made by Post Offices at the end of March 2001 on behalf of other Ministries/Departments.

        • DoP did not realise Rs.28.49 crore from Department of Telecommunication from
          1993-94 onwards being the commission for transmitting telegraph messages through combined Post Offices.

      Audit Reports [Defence Services]

       

      Defence Expenditure

      (Rs. in crore)

      Components

      1998-99

      1999-2000

      2000-01

      Army

      21994.26

      27134.92

      27061.55

      Navy

      3109.15

      3542.92

      3739.93

      Air Force

      5615.45

      6250.42

      7485.22

      Ordnance Factories

      608.71

      - 126.57*

      810.88

      Capital outlay on Defence

      Services

      10035.94

      11854.84

      12384.05

      Total

       

      48656.53

      51481.63

      *The net saving under the grant was due to more issues to services than anticipated.

      Highlights of Audit Observations

      1. Army

      1. Procurement for OP Vijay

      Ministry of Defence relaxed extant procedures to quickly secure supplies for Operation Vijay launched in May/June 1999. Of the purchases aggregating Rs.2175.40 crore, connected papers for 123 contracts worth Rs.2163.09 crore were reviewed in audit with the following results:

        • Nearly all the supplies were either received or contracted and received well after cessation of hostilities and therefore in no way supported the operations.
          Supplies valued at Rs.2150 crore were received after the cessation of hostilities in July 1999, of which supplies valued at Rs.1762.21 crore were received after January 2000, 6 months after cessation of hostilities. Supplies valued at Rs.1606.26 crore (75 percent) were contracted after the cessation of hostilities in July 1999.

        • In 35 cases detailed in the report, relaxation of rules and procedures led to the Government knowingly paying Rs.44.21 crore more for certain items,
          ordering supplies worth Rs.260.55 crore which did not meet qualitative requirements, being saddled with shelf life expired ammunition aggregating Rs.91.86 crore and purchases in excess of authorisation / requirement
          Rs.107.97 crore. Besides ammunition worth Rs.342.37 crore was contracted for import on grounds of operational emergency even though it was being produced in ordnance factories/ PSUs. Further more delays at various stages of processing the cases hindered timely deployment of stores aggregating Rs.199.42 crore. Thus, while critical supplies of clothing, ammunition and arms could not reach the troops during the operation, an amount of Rs.1046 crore, almost half of the total, entirely in foreign exchange, was spent fruitlessly, breaching established principles of propriety.

       

      2. Delegation of financial powers to GOC-in-C

      Review interalia revealed that:

        • the delegated financial powers were not exercised within the parameters of delegation.

        • stores valuing Rs.18.13 crore purchased during 1996-97 to 2000-01 were not covered under the delegated special financial powers.

        • procurement of sub-standard stores valued Rs.3.12 crore had an adverse impact on the counter insurgency duties.

        • there was delay of 3 years in formulation of policy of accounting, stock-taking and conditioning of stores procured under the delegated powers.

       

      3. Avoidable expenditure on creating storage accommodation and helipad with allied facilities for helicopters

      Lack of coordination between various wings of the Army led to avoidable construction of a Central Aviation Workshop at a cost of Rs.6.77 crore.

      4. Non-utilisation of mines due to premature failure of cells

      Mines imported at a cost of Rs.16.32 crore were rendered unusable due to improper storage of batteries.

      5. Avoidable loss due to non-availing of concessional electricity tariff

      BEST offered electric supply at concessional rates from July 1997 for high tension bulk consumers like MES for mixed residential and non-residential load provided they segregated their residential and non-residential load and met certain conditions. However, two Garrison Engineers failed to take timely action to avail the concession resulting in an avoidable expenditure of Rs.9.58 crore.

      6. Bouncing of Bank Guarantee furnished by Punjab Wireless Systems Ltd.

      The Government accepted against advance payments an invalid Bank Guarantee which did not conform to the standard format. While the orders were cancelled
      due to failure of the supplier, the Bank Guarantees of Rs.8.27 crore could not be encashed.

      (b) Ordnance Factories

      1. Blocked inventory pending Manufacture of cluster Bombs

        Pending manufacture and supply of 100 cluster bombs to the Air Force by
        March 2003 Ordnance Factory Khamaria and Gun Carriage Factory Jabalpur were saddled with blocked inventory of Rs.5.73 crore.

      2. Blocked inventory due to failure to manufacture a fuse

        Gun and Shell factory Cossipore failed to produce defect free fuses of an ammunition. This led to suspension of manufacture of this ammunition at another factory resulting in cumulative blocked inventory of Rs.72.61 crore.

         

      3. Injudicious manufacture of an ammunition before development

        Bulk manufacture of 155 mm HEER ammunition at a cost of Rs.4.59 crore by an Ordnance Factory during 1998-99 even before pilot lot of ammunition was cleared in proof was not only injudicious but was also in gross violation of extant provisions.

      4. Rejection due to defective manufacture of propellants

        116.25 tonne propellants manufactured and supplied to Ordnance Factory Varangaon by Ordnance Factory Bhandara were rejected by the former resulting in a loss of Rs.6.09 crore.

      5. Avoidable import of cartridge cases

        Import of cartridge cases of an ammunition at a cost of Rs.10.69 crore by Ordnance Factory Khamaria was avoidable as the stipulated delivery schedules of these stores did not meet the intended purpose.

      6. Injudicious procurement of Machine

      Procurement of a whirling machine at Rs.7.82 crore by Vehicle Factory Jabalpur for carrying out machining operation of Crankshafts was injudicious since existing machines were adequate to meet the requirement.

      (c) Air Force & Navy

      1. Acquisition of Special Purpose Helicopter

        Two contracts were concluded for import of 9 special purpose helicopters. The helicopter selected was only a prototype and had not entered production phase. These helicopters were selected without proper price negotiation and evaluation of vital systems. The radars of helicopter also fell short of requirements. The procurement action was initiated without finalising the Naval Staff Quality Requirements. The price paid was much more than the cost estimation of Navy. Even after allowing 5% increase per annum towards escalation in cost and after providing for additional fitments to helicopters, there was an extra expenditure of Rs.118 crore. Evaluation trials also revealed several handicaps.

      2. Procurement of unreliable fuses

        Despite serious technical limitations found in earlier purchase of fuses at a cost of Rs.6.34 crore from a foreign firm in 1995, Ministry concluded another contract for 7450 fuses at a cost of Rs.54.52 crore in August 1999 to meet deficiencies in reserves. The firm supplied the fuses without pre-shipment inspection in violation of contractual provisions and received payment. All the fuses suffered from passivation effect of the batteries and were not fully reliable.

      3. Procurement of a missile

      Unnecesssary procurement of certain missiles resulted in avoidable expenditure of Rs.24.77 crore. Procedure for selection of firm was irregular, and payment terms unduly liberal, violating norms. The price finalised by the empowered delegation was exorbitant resulting in additional expenditure of Rs.10.18 crore.

       

      Audit Report [Railways]

       

       

      Financial management

      Financial Results: Against the projection of net revenue of Rs.1791.69 crore in the Budget 2000-01, the net revenue generated was Rs.1071.23 crore only. The dividend payable to the General Revenues during 2000-01 was Rs.2130.94 crore. The Ministry however deferred the payment of dividend by Rs.1823.30 crore and paid dividend of Rs.307.64 crore only. The actual surplus left after payment of dividend to General Revenues was only Rs.763.59 crore which was Rs.412.72 crore less than the Budget Estimates of Rs.1176.31 crore.

      Operating Ratio: The operating ratio represents the percentage of working expenses to traffic earnings. It deteriorated from 93.31 per cent in 1999-00 to 98.34 per cent in 2000-01 for the Railways as a whole.

      Plan Expenditure: During the year 2000-01 the actual plan expenditure of Rs.6497.84 crore fell short of Budget and Revised Estimates by Rs.834.16 crore and Rs.16.16 crore respectively. Plan expenditure of Rs.3229.05 crore met from Internal Resources was also less than the Budget Estimates by Rs.811.95 crore but more than the Revised Estimates by Rs.6.05 crore.

      The expenditure from extra-budgetary resources generated by way of mobilisation of funds by the Indian Railway Finance Corporation (IRFC) for investment in Railways, and ‘Build, Operate, Lease and Transfer’ (BOLT)/ ‘Own Your Wagon Scheme’ (OYWS) was Rs.2896.84 crore. The leasing charges paid on market borrowings from IRFC, BOLT and OYW schemes during 2000-01 amounted to Rs.2748 crore, Rs.117.43 crore and Rs.176.19 crore respectively.

      Highlights of Audit Findings

      1. Procurement of wagons by Indian Railways

        • Procurement of wagons through Wagon India Limited (instead of inviting open tenders) at higher rates resulted in extra expenditure of Rs.23.24 crore.

        • Own Your Wagon Scheme suffered from several deficiencies and resulted in extra payment of lease charges amounting to Rs.36.06 crore due to delay in procurement of wagons.

        • Delay in finalisation of one tender by the Railway Board resulted in extra expenditure of Rs.12.88 crore.

        • Delay in supply of free supply items by Railways resulted in extra expenditure of Rs.5.51 crore on account of avoidable payment of escalation charges.

      2. Passenger Amenities on Indian Railways

        • Against the budget allotment of Rs.618.35 crore during the review period, the actual expenditure was only Rs.518.39 crore i.e. short of allotment by
          Rs.99.96 crore (16.16 per cent).

        • The commitment made by the Railways to the Estimate Committee to eliminate all deficiencies in basic amenities by 1990-91 has not been fulfilled even as on 2000-01.

        • The percentage of stations deficient in the provision of drinking water in eight Zonal Railways ranged between 14.20 (Central Railway) and 43.84 (Western Railway).

        • The complaints against the departmental catering units were more than the complaints against the contractor operated units.

      3. Stores Management and Inventory Control in Railways

        • In 4274 cases, material worth Rs.20.67 crore was fictitiously shown as issued but not actually removed from the depots.

        • In 1231 cases, the entire consignment was rejected by the consignee due to
          non-conformity of the material to specifications. This indicated poor quality of inspection by Inspecting Agencies.

        • The efficiency of Inventory Control is judged by Turn Over Ratio (TOR) which is expressed in percentage of value of closing balance at end of financial year to the value of issues during the year. The TOR was manipulated by delaying accounting of receipts and showing materials as issued without lifting these in the same year. A review of 29 depots disclosed that in respect of 12598 cases, material worth Rs.43.50 crore was shown as issued but material was not lifted in the same years.

        • Out of 541 non-moving items pending disposal for more than 3 years even prior to 1998-99 in 32 depots test-checked, 455 items were still awaiting disposal as on
          1 June 2001. The period for which these items had been awaiting disposal was upto 26 years on Northeast Frontier Railway and 17 years on Western Railway.

      4. Modernisation of Signalling and Telecommunication System

      The Standing Committee on Railways (1996) viewed that the modernisation of Signalling and Telecommunication System on Railways should be made a thrust area for investment in IX Plan (1997-2002). A review of the system revealed that:

        • During the period from 1996-97 to 2000-01, out of the total allocation of
          Rs.58010.96 crore on nine Zonal Railways for Grant No. 16 – Assets, Acquisition, Construction and Replacement, the allocation for S&T was only Rs.1482.02 crore, a mere 2.55 per cent.

        • No concrete steps had been taken to introduce modern signalling system on
          6016.39 route kms. of its ‘A’ route.

        • In 523 sections on the ‘A’ route of five Zonal Railways (Central, Eastern, Northern, South Eastern and Western), where the utilisation of line capacity is more than 100 per cent, automatic block signalling has not been provided to
          de-congest the traffic.

        • Sanction for construction of 3rd line was accorded in 8 sections on three Zonal Railways at a cost of Rs.761.34 crore to increase the line capacity. The line capacity increase could have been achieved by provision of automatic block signalling at an estimated cost of Rs.61.42 crore.

        • Khanna Accident Enquiry Committee recommended (1998) that block proving axle counters be installed on ‘A’ route within a time frame of 3 years. However, only on four Zonal Railways (Central, Northern, South Eastern and Western) 210 block proving axle counters covering 867.52 route kms. on ‘A’ route had been installed as on 31 March 2001. Even before provision of axle counters on ‘A’ routes, 418 axle counters were provided at a cost of Rs.20.75 crore in other than ‘A’ and ‘B’ routes.

        • The Railway Reforms Committee (RRC) had felt the need for Railways to develop its own infrastructure for telecommunication, independent from
          BSNL. As on 31 March 2001, Railways have leased from BSNL 43126.93 route kms. for its operational requirements and 17267.31 route kms. for its administrative use.

        • Due to lack of clear policy for laying Optical Fibre Cable (OFC), the progress in laying OFC for both its own needs and for commercial exploitation was very slow. Out of 15491.83 electrified route kms., OFC was laid only in 3337.07 route kms. (21.54 per cent) as on 31 March 2001. For 5306.74 electrified route kms., OFC works were in progress.

      5. Non-revision of siding charges

      Failure of Railway Administration to revise siding charges for electric locomotives used for placement and removal of wagons resulted in short recovery of
      Rs.24.67 crore.

      6. Loss due to non-recovery of shunting charges

      Non-levy of shunting charges in respect of New Thermal Power Station Siding, Chandrapur for conducting unloading operations by the Railway engine inside the siding resulted in non-recovery of Rs.17.58 crore.

      7. Loss due to incorrect grant of benefit of train load class rates on Liquified Petroleum Gas (LPG) booked in BTPGLN tank wagons

      Delay in specifying the minimum number of wagons required per rake for loading LPG to avail of the benefit of trainload class rate resulted in loss of revenue amounting to Rs.16.56 crore in respect of three sidings on Western Railway.

      8. Injudicious restoration of a branch line

       

      Railway Board’s decision for restoration of an un-economic Metre Gauge branch line despite the repeated submission by the Railway Administration regarding poor traffic potential and recurring negative return, resulted in injudicious investment of
      Rs.25.64 crore.

      9. Import of sub-standard wooden sleepers

      Placement of orders for "Balau" sleepers ignoring the recommendations of Forest Research Institute and failure of Sleeper Passing Officers to conduct proper inspection led to injudicious procurement of inferior quality sleepers at the cost of
      Rs.20.03 crore.

       

       

       

      10. Unproductive expenditure on a project

      Injudicious decision to take up thyristorisation of electric locos by in-house development of an obsolete technology led to abandonment of the project and consequential loss of Rs.17.43 crore.

      11. Procurement of pre-stressed concrete sleepers

      Procurement of pre-stressed concrete sleepers at higher rates against repeat orders and non-recovery of the cost of retrievable steel scrap from sleeper manufacturers resulted in loss of Rs.77.41 crore.

      12. Extra expenditure on procurement of wooden sleeper turnouts/concrete sleeper turnouts

      Procurement of wooden sleeper turnouts at higher rates and deficiencies in the contracts placed for the procurement of concrete sleeper turnouts resulted in extra expenditure of Rs.44.04 crore.

      13. Extra expenditure due to incorrect assessment of requirement of Cast Manganese Steel crossings

      Railway Board's failure to correctly assess the requirement of Cast Manganese Steel crossings, by not taking into account the supplies due/ orders placed and availability of pre-stressed concrete sleepers turnouts resulted in excess inventory to the extent of Rs.32.32 crore.

      Audit Reports [Revenue Receipts]

      Highlights of Audit Observations

      (A) Indirect Taxes

       

      Customs

       

       

      1. Indian Customs Electronic Data Interchange System (ICES)

      A comprehensive review of planning and execution of ICES was taken up to assess its performance, efficiency, economy, security etc. It was revealed that:

      Even after 9 years since conception, the project was far from complete.
      Software had been developed for only 33 modules out of the envisaged 73. Poor planning, inadequate allocation of resources and not following the well established life cycle of a computerisation project were essentially responsible for
      the delay. No major gains in trade facilitation were visible since EDI
      connectivity had not been established and only a very small percentage of consignments were being cleared within the three days stipulated in the Citizen's Charter.

      Financial estimates both for the pilot and the All India projects had to be revised due to poor formulation of the initial estimates, over-looking necessary ingredients of the project. Optimum value for money was not realized due to procurement of underconfigured servers, accepting hardware without testing, failure to obtain price/technology advantage at the time of delivery and insisting on composite procurement of hardware and software. The delay in completion of site preparation work resulted in delay in commencement of on-line operations in 21 locations besides keeping hardware idle for periods ranging from 4 to 17 months. Imprudent selection of VSAT technology for large volume of data access led to infructuous expenditure of Rs.1.03 crore.

      The department was yet to formulate a security policy identifying threat
      perceptions and safety measures. WORM (write once read many) optical disk installed in the servers had not been made use of. Failure to establish system controls like change of passwords at regular intervals, cross verification of data entered in the system etc., facilitated fraudulent payment of drawback of Rs.1.95 crore at Delhi Custom House.

      Incorrect/non-updation of drawback rates/import duty, absence of validation controls at the time of data entry and deficiency in software resulted in leakage of revenue.

      2. Non realisation of Foreign Exchange

      Review revealed that export proceeds aggregating Rs.11735 crore were pending realisation as on June 2000. Of this Rs.7549 crore, or two third was
      outstanding for more than two years. Test check revealed 5262 cases involving unrealised foreign exchange of Rs.2182.63 crore where export incentives were availed. Duty incentive of Rs.521.58 crore along with interest of Rs.188.63 crore were recoverable in these cases. 60 per cent of this amount was recoverable
      from only 20 units. These exporters were also liable for penal proceedings. The efficacy of XOSp as a control instrument for monitoring export incentives was limited due to delay in transmission of these statements to Customs Houses
      by the Regional offices of RBI; inadequate, incomplete or incorrect information; poor follow up action at Custom Houses and keeping licensing offices
      out of the loop. Incentives availed in respect of Rs.177.25 crore of non realised export proceeds had not been ascertained before write off and extensions for
      realisation of outstanding export proceeds of Rs.199 crore were granted
      in 873 cases by Regional offices of RBI in violation of provisions of Exchange Control Manual.

      3. Irregularities in assessments

        • In 12 cases dutiable imported goods were incorrectly classified and assessed to duty at lesser rates leading to short levy of Rs.4.09 crore.

        • Extending the benefit of exemption notifications to dutiable goods not covered by them resulted in short collection of duty of Rs.49.31 lakh in 8 cases.

        • Short levy on account of under-valuation of assessable goods in 2 cases amounted to Rs.2.78 crore.

        • Additional duty leviable under Section 3 of the Tariff Act amounting to
          Rs.3.62 crore was not levied/short levied in 6 cases.

        • Special Additional duty leviable under section 3A of Tariff Act amounting to Rs.1.52 crore was not levied/short levied in 4 cases.

      Central Excise

      1. Levy of duty on the basis of capacity of production on processed fabrics

        • While the scheme was intended to plug leakage of revenue, audit scrutiny revealed that it resulted in not only a 55 per cent reduction in the incidence of duty but also a fall in revenue collections. Consequent reduction in revenue in 394 units was estimated at Rs.1132.14 crore in two years, which was more than the amount actually collected from these units.

        • The capacity determined by the Government initially in value terms and later in quantity terms was on an average 25 to 47 per cent lower than the actual production.

        • The Government failed to tax extra production of fabric using stentors other than hot air stentors/float dryers. The resultant duty foregone in 60 units was Rs.163.46 crore.

        • Processors with proprietary interest in spinning/weaving mills were also allowed to pay duty under the scheme, which resulted in loss of revenue of Rs.21.41 crore in 4 units.

      2. Absence of appropriate provision in the Rules enabled assessees to get unintended benefit

      Inappropriate provisions in the Rules led to grant of Modvat credit on inputs (molasses) more than the duty recoverable on finished goods (rectified spirit). This enabled the assessees to utilise the surplus credit for payment of duty on sugar even though molasses was not an input for manufacture of sugar. Unintended benefit derived by 38 assessees amounted to Rs.31.35 crore.

      3. Ambiguous notification let to non-levy of additional duties

      Issue of ambiguous notifications enabled hundred per cent export oriented units to avail exemption from additional duties of excise on goods exported as well as cleared in the domestic tariff area though the exemption was intended only for goods exported. Exemption availed by 85 export oriented units caused revenue loss of Rs.17.25 crore.

      4. Excessive and incorrect grant of deemed credit

      91 processors of fabrics took undue financial benefit of Rs.54.26 crore by taking deemed credit on inputs, in excess of the duty suffered.

      5. Incorrect grant of refund/rebate of duty/delay in grant of refund of duty

      Incorrect grant of refund/rebate of duty or delay in grant of refund of duty, resulted in loss of revenue of Rs.129.67 crore

      6. Incorrect allowance of exemptions

      Assessees wrongly availed exemption notifications pertaining to intermediate goods, finished goods, goods manufactured on job work basis and goods produced by small scale industry. Duty of Rs.113.77 crore was short collected as a consequence.

      7. Non-levy of duty and cess

      There were instances of non-levy of Central Excise duty on additive mixture, bricks, hot rolled products and also non-levy of cess on textiles and rubber to the tune of Rs.60.56 crore.

      8. Incorrect classification of goods

      Instances of misclassification by assessees manufacturing cosmetics, motor vehicle’s parts and bodies, stiffened fabrics etc., were noticed in test audit with a consequent short realisation of Rs.45.09 crore.

      9. Incorrect availment of Modvat/Cenvat credit

      Incorrect availment of Modvat/Cenvat credit in excess of prescribed limit or on ineligible goods or in violation of the Rules caused the Government to be deprived of Rs.40.92 crore.

      10. Incorrect valuation of excisable goods

      Cases of incorrect valuation were detected pertaining to goods sold at buyer’s destination, goods transferred to sister units, goods sold through depots, etc. This resulted in short levy of duty of Rs.30.58 crore.

      11. Demands delayed or not raised

      Non-adjudication of demands, non-raising of demands and delay in raising demands caused a revenue loss of Rs.30.42 crore to the Government.

      Service tax

        • Service tax of Rs.21.85 crore was not levied on services provided by consulting engineers, transport operators, management consultants and consignments agents.

        • Short collection of service tax amounted to Rs.8.77 crore.

        • Interest of Rs.1.53 crore was not recovered on delayed payment of service tax.

      1. Direct Taxes

      1. Assessment of Co-operative Societies

        Audit review revealed that out of 425993 co-operative societies identified by Audit, only 18801 co-operative societies existed on the records of the Income-tax department. Out of these, on an average, only 3.22% filed returns of income during the financial years 1997-98 to 1999-00. The department had not initiated any concrete action to tax all the co-operative societies. There was also no co-ordination between the Registering Authority of co-operative societies and the Income-tax department.

        Test check of 1009 assessment cases revealed incorrect and irregular deductions under Section 80P and other sections of the Income Tax Act resulting in short levy of tax of Rs.277.83 crore.

        There was no proper internal control system to monitor the assessments of
        co-operative sector and no control register was found maintained to watch the receipt of returns from the co-operative societies.

      2. Assessments of Private Banking Companies and Non-Banking Financial Companies

        An audit exercise to gauge the number of NBFCs not assessed to tax in the states of Bihar, Gujarat, Haryana, Kerala, Uttar Pradesh, Delhi and West Bengal revealed that 12210 of the 18435 NBFCs identified by Audit were not in the tax net. The department neither had a database relating to NBFCs operating in these states nor had any system to monitor the filing of returns by the NBFCs. Even correlation of the income tax returns was not made with those of interest tax and wealth tax.

        Test check in Audit of assessments of Private Banking Companies and
        Non-Banking Financial Companies revealed irregularities in assessments under
        the Income Tax, Interest Tax and Wealth Tax Act resulting in total short levy of tax of Rs.1032.95 crore.

        The mistakes included incorrect deductions of bad debts, special reserve,
        capital expenditure, depreciation and other avoidable mistakes in income tax assessments. In 946 cases, interest chargeable to interest tax escaped assessment involving tax effect of Rs.184.89 crore.

      3. Assessment of Private Hospitals and Nursing Homes

        Private hospitals and nursing homes are a very prominent and prosperous component of health services. However, out of 21103 private hospitals and nursing homes, as identified by Audit, the Department could confirm only 7240 (34%) private hospitals and nursing homes as subject to assessment.

        The Department failed to widen the tax net in respect of private hospitals and nursing homes despsite availability of resources and tools in the shape of CIB (Central Information Branch) and powers of survey and search under the Income Tax Act. During the years 1997-98 to 1999-00, only 163 private hospitals and nursing homes were brought in the tax net through these tools.

        Non-deduction of TDS, incorrect deduction of capital expenditure, incorrect computation of income, irregularity in allowance of depreciation etc. resulted in short levy of tax amounting to Rs.14.57 crore as revealed in test check of a few assessment cases.

      4. Assessment of companies in select sectors

        The cement, automobiles and cement sectors have registered enormous growth in their activities over the last decade. The review focused on the income tax and wealth tax assessments of 97 selected companies in these sectors for the assessment years 1994-95 to 1999-00 having profit before tax of Rs.25 lakh. 326 audit observations were raised having tax effect of Rs.654.42 crore.

        It was observed that although most of the assessments of these companies were completed in scrutiny manner, adequate care was not taken during assessment leading to avoidable mistakes.

         

      5. Refunds under the Income Tax Act, 1961

      Review of refunds under the IT Act revealed that due to laxity in the issue of granting refunds, considerable amount of revenue in the shape of interest paid to the assessees was foregone which could have been avoided had the Department paid greater attention in the matter and taken prompt action. Further there was lacuna in the law as a result of which the assessees derived unintended benefit. Audit pointed out excess refund of tax and/ or interest of Rs.1244.10 crore arising due to the various mistakes in computation, non-adherence to the provisions of the Income Tax Act or to the procedures laid down by the CBDT.

       

      6. Underassessment of Tax

      CAG raised 16001 audit observations relating to under-assessment/ over-assessment of Rs.4826.94 crore. The Audit Report, however, included only 1099 cases involving tax effect of Rs.1580.57 crore. Most of the observations related to arithmetical mistakes, application of incorrect rates of tax, incorrect valuation of closing stock, excess allowance of business expenditure, omissions to assess capital gains, excess exemptions, incorrect deductions, etc. To cite a few examples:

        • Assessments of M/s Indian Oil Corporations Ltd., M/s BPC Ltd., M/s Hindustan Lever and others in Maharashstra charge were completed in a summary/scrutiny manner. The assessing officer failed to include excise duty payable on finished goods in the value of closing stock leading to undercharge of tax of
          Rs.52.30 crore.

        • While completing the assessment of M/s Videsh Sanchar Nigam in scrutiny manner, the assessing officer charged interest at a higher rate on the tax demand and further charged interest on refund leading to overcharge of tax of
          Rs.62.87 crore.

        • In the case West Bengal Power Development Corporation Ltd., the assessing officer failed to select the case for scrutiny assessment which resulted in under assessment of income and excess carry forward of loss involving under charge of tax of Rs.60.61 crore including potential tax of Rs.59.45 crore.

        • The assessment of Indian Railway Finance Corporation Ltd. was completed in scrutiny manner under the special provisions of the Act. The assessing officer omitted to write back the deduction of Rs.253.34 crore while calculating the book profit which resulted in short levy of tax of Rs.54.58 crore.

        • Incorrect adoption of figures while totalling the disallowances and incorrect allowance of deduction on account of depreciation in the case of M/s Rajasthan State Electricity Board and State Bank of Saurashtra led to aggregate
          undercharge of tax of Rs.47.95 crore.

        • The assessing officer failed to issue revised intimation withdrawing the set-off of long term capital losses in the case of M/s ICI (India) Ltd. which resulted in undercharge of tax of Rs.13.98 crore.

      Audit Reports [Commercial]

      As on 31 March, 2001 there were 368 Central Public Sector Undertakings under the audit jurisdiction of the CAG. These included 271 Government Companies, 86 deemed Government companies, 6 Statutory Corporations and 5 General Insurance Companies.

      About the PSUs:

       

        • Accounts of 83 PSUs in arrears

        • Abnormally high inventory of raw material, stores, spares and finished goods

        • Inadequate system of financial control and accounts

        • Surplus or obsolete stores and spares

        • Ineffective internal audit system

        • Deficient cost control system

        • Poor debt recovery and default in repayment of loans / guarantee fee

        • Overstatement / understatement of profit/loss and assets and liabilities

        • Paid up capital fully eroded in 93 PSUs

        • 142 PSUs made profit of Rs.38816 crore

        • 115 PSUs sustained loss of Rs.11375 crore

        • Investment of Government in equity capital in Rs. 79081 crore

      265 Central PSUs

        • Loans advanced to 121 PSUs Rs. 43260 crore

        • Subsidy support to PSUs Rs. 16394 crore

      (related to administered prices)

        • Loans and interest waived Rs. 1831 crore

        • Net Profit of 263 PSUs Rs. 17876 crore

        • 90 Companies declared dividend Rs. 8449 crore

        • Number of employees in 263 PSUs 18.48 lakh

      (excluding FCI)

      Net worth/Accumulated loss

      Out of 263 Government Companies, the accounts of which were reviewed by audit, equity investment in 93 companies was completely eroded by their accumulated losses. As a result, aggregate net worth of these companies became negative to the extent of
      Rs.41958.66 crore as on 31 March 2001. Accumulated losses in these 93 PSUs rose to Rs.54186.94 crore in 2000-01 from Rs.45585.55 crore in 1998-99; of these 61 stood referred

      to BIFR. The extent of accumulated loss in some of the companies is indicated below:

      (Rs. in crore)

      Fertiliser Corporation of IndiaLtd.

       

      6852.95

      Hindustan Fertiliser Corporation Ltd.

       

      6149.55

      Bharat Coking Coal Ltd.

       

      4065.85

      Eastern Coalfields Ltd.

       

      3846.50

      National Jute Manufacturers Corporation Ltd.

       

      2441.93

      Hindustan Photofilms Manufacturing Company Ltd.

       

      1474.91

      National Textile Corporation (MN) Ltd.

       

      1430.06

      Indian Drugs & Pharmaceuticals Ltd.

       

      1429.89

      Heavy Engineering Corporation

       

      1341.68

      Konkan Railway Corporation Ltd.

       

      1302.46

      PSUs making profits above Rs 1000 crore in 2000-01:

        • Oil & Natural Gas Commission Ltd. Rs.5228.78

        • National Thermal Power Corporation Ltd. Rs.3657.61

        • Indian Oil Corporation Ltd. Rs.2720.33

        • Mahanagar Telephone Nigam Ltd. Rs.1532.38

        • Gas Authority of India Ltd. Rs.1126.17

        • Hindustan Petroleum Corporation Ltd. Rs.1088.01

      Supplementary Audit of Annual Accounts of Government Companies

      During the year, comments on the accounts of 99 Government companies were made by the CAG of India. Of these, 19 companies revised their accounts on the basis of audit observations. Consequential effect of these revisions on the profit/loss of some of these companies during 2000-01 is as under:

      Profit / Loss

      No. of companies

      (Rs. in crore)

      Increase in profit

      5

      (+) 3.80

      Decrease in profit

      8

      (-) 37.84

      Increase in loss

      3

      (-) 19.14

      Decrease in loss

      2

      (+) 1.83

      Audit Highlights

      (Rs. in crore)

      1. Unproductive expenditure

      341.44

      Unproductive expenditure/investment in 38 cases due to construction of excess dwelling units, non-recovery of inter-corporate deposits, investment in joint venture, pay and allowances of idle labour, injudicious import of components, procurement of equipment etc. resulted in loss.

       

      (Rs. in crore)

      1. Loss to PSUs

      330.22

      There was loss of revenue/ sale proceeds in 45 cases due to shortages, belated raising of invoices, delay in realisation/non-realisation of debts, sub letting of premises at lower rates, negligence and improper storage of wheat, contamination in finished product, loss of generation of power etc.

      3. Undue favour to parties

      291.32

      Loss suffered in 19 cases on account of undue favour to parties, non-enforcement of terms and conditions of contract, defective agreement terms etc.

      4. Excess Payment to Staff

      127.54

      Excess payment in 15 cases was made to staff of PSUs on account of ex gratia, bonus, salaries, wages, subsidy etc.

      5. Avoidable payments

      66.13

      Avoidable payment was made in 14 cases on account of demurrages, customs duty, excise duty, interest, income tax, etc.

      1. Loss due to adoption of incorrect tariff etc.

      35.84

      Loss incurred in 11 cases due to adoption of incorrect tariff, excess settlement of claim etc.

    • Avoidable loss
      1. 22.60

        Delay in finalisation of tenders, overlooking lowest offers and failure to invoke risk clauses etc. resulted in avoidable loss in 12 cases.

        8. Air India -Undue favour to general sales agent

        57.02

        Air India extended undue favour to its general sales agent appointed for UK. It admitted productivity-linked incentive claims outside the terms of the agreement by working it on the amount of net sales from the first pound rather than at the rates prescribed for each slab. The total amount released on such payment during
        1987-2000 was equivalent to Rs.57.02 crore.

        9. Food Corporation of India (FCI) -

        Avoidable expenditure due to lack of control

        69.16

        During 1994-95 due to ineffective control by FCI, millers were able to lift paddy stored in their premises unauthorisedly forcing FCI to treat this paddy as sold to the millers. Against the economic cost of this paddy at Rs.141.74 crore, FCI received Rs.93.10 crore during 1995-96 resulting in loss of Rs.48.64 crore in addition to Rs.20.52 crore being the economic cost of 36770 MT of paddy remaining unrecovered from the millers.

        10. National Hydroelectric Power Corporation Limited -

        Loss of generation of power

        39.35

        Due to failure in ensuring availability of critical spares and equipment in working condition, the Corporation could not operate one of the three units of its Chamera Project, resulting in loss of generation of power during the period April 1996 to May 1996 and March 1999 to June 1999. The company thereby incurred a loss of revenue amounting to Rs.14.58 crore, besides loss of incentive amounting to Rs.24.77 crore.

         

        (Rs. in crore)

        11. Steel Authority of India Limited (SAIL) –

        (i) Loss due to imprudent financial practices

        141.32

        Failure of SAIL to take timely decision or action to enforce uniform reasonable revised power tariff throughout its various steel plants resulted in loss of revenue during 1995-96 to 1999-00.

        (ii) Undue favour to a private contractor

        83.53

        SAIL sustained loss due to extending undue financial benefits to a private party by way of escalation costs (Rs.58.94 crore) and waiving recovery of liquidated damages (Rs.24.59 crore) during the period from 1994-95 to 1997-98.

        1. Revenue Management in Airports Authority of India

         

        • The Authority could not recover Rs.10.77 crore as it did not raise bills for traffic revenue, overflying charges for Indian air space and licence fee with reference to the gross turnover of the licencees.

        • The Authority did not recover passenger service fee of Rs.42.94 crore for the years 1997-98 and 1998-99 from Indian Airlines Limited who had collected the same from the passengers on behalf of the Authority.

        • Due to the failure of the Authority in entering into agreements with the Central/State Government departments for the recovery of lease rent, licence fee etc., recovery of revenue of Rs.401.50 crore remained outstanding as on
          March 2000.

        • Failure of the Authority in raising bills on Air India Limited and Indian Airlines Limited for licence fee towards ground handling services rendered by these airlines to others at the airports resulted in non-realisation of revenue of
          Rs.71.74 crore.

        • Delay in realisation of cargo revenue from Air India Limited resulted in loss of interest of Rs.8.76 crore.

        • Significant delays in raising bills for the non-traffic revenue viz. licence fee and delay in realisation of dues resulted in blockage of funds besides loss of interest of Rs.20.30 crore.

        1. Import and domestic distribution of fertilisers by MMTC Limited

         

        • Despite having huge stocks of fertilisers at the end of 1994-95, the Company went into heavy purchases in the following year, due to which stock accumulations at the end of 1995-96 increased considerably, resulting in heavy inventory carrying cost amounting to Rs.26.91 crore during 1994-95 to 1996-97.The Company also suffered a loss of Rs.2.16 crore due to sale of DAP at a price lower than the cost price.

        • The Company incurred losses of Rs.33.98 crore in handling of pool urea during the years 1995-96 to 1999-00. Besides, the Company incurred inventory-carrying cost of Rs.24.58 crore up to 1999-00.

        • There was an avoidable expenditure of Rs.20.94 crore due to a faulty decision of the Sale Purchase Committee in the purchase of urea.

         

        1. Modernisation of Bokaro Steel Plant of Steel Authority of India Ltd.

         

          • With a view to increase the capacity of production of liquid steel, Government of India approved in July 1993 a modernisation scheme for reconstruction of a few units of Bokaro Steel Plant at a capital cost of Rs.1625.79 crore. It also aimed at reduction in energy consumption and improvement in quality of finished product. The cost was revised to Rs.1792.90 crore in August 1994 and further to Rs.2468.18 crore in October 1999.

          • Revision of implementation strategy from single turnkey mode to competitive global bidding due to non-availability of Rouble credit from USSR resulted in increase in project completion schedule by 6 months and increase in capital cost by Rs.1497.23 crore due to change in the implementation strategy, devaluation of Indian currency, higher incidence of interest and price escalation between the intervening periods.

          • The project was cleared with debt equity ratio of 1:1. The actual debt equity ratio worked out to 59:1 due to SAIL’s inability to provide funds from internal sources. Consequently, the burden of interest went up from Rs.90.91 crore to
            Rs.551.56 crore. Further, based on the current price of finished goods, the IRR came down to 7 per cent from 22.6 per cent envisaged.

          • The envisaged production was not achieved. In fact, it registered negative growth over pre-modernisation period of 1993-94.

          • Various techno-economic parameters envisaged after modernisation could not be achieved. The specific heat consumption per tonne of HR Coil was abnormally high resulting in excess consumption of heat valuing Rs.120.98 crore during
            1998-99 to 2000-01.